TULSA MEMORIAL HOSPITAL Break-Even Analysis

1. Using the historical data as a guide, construct a pro forma (forecasted) profit and loss statement for the clinic's average month for all of 2014 assuming the status quo. With no change in volume (utilization), is the clinic projected to make a profit?

2. Now consider the clinic's situation without the new marketing program. How many additional daily visits must be generated to break even? Construct a breakeven graph that can be included in your report.

3. Repeat the Question 2 analysis, but now assume that the new marketing program is implemented.

4. Now focus solely on the expected profitability of the proposed marketing program. How many incremental daily visits must the program generate to make it worthwhile? (That is, how many incremental visits would it take to pay for the marketing program, irrespective of overall clinic profitability?) Construct a breakeven graph.

5. Thus far, the analysis has considered the clinic's near-term profitability, that is, an average month in 2014. Recast the pro forma (forecasted) profit and loss statement developed in Question 1 for an average month in 2019, five years hence, assuming that volume is constant over time. (Hint: You must consider likely changes in revenues and costs due to inflation and other factors. The idea here is to see if the clinic can "inflate" its way to profitability even if volume remains flat.)

6. Although you are basically satisfied with the analysis thus far, you are concerned about the uncertainties inherent in the revenue and expense data supplied by the clinic's director. Assess each element in your Question 1 pro forma profit and loss statement. Are there any items that are more uncertain than the others? How could uncertainty be worked into the analysis? Is there any additional information that you might want to get from the clinic's director?

7. Suppose you just found out that the $3,215 monthly malpractice insurance charge is based on an accounting allocation scheme that divides the hospitals total annual malpractice insurance costs by the total annual number of inpatient days and outpatient visits to obtain a per episode charge. Then, the per episode value is multiplied by each department's projected number of patient days or outpatient visits to obtain each department's malpractice cost allocation. Does this allocation scheme bias your breakeven analysis? (No calculations are necessary.)

8. After all the work thus far in the analysis you suddenly realize that the hospital, as a for-profit corporation, must pay taxes. What impact does tax status have on your breakeven analysis?

9. Does the clinic have any value to the hospital beyond that considered by the numerical analysis just conducted? Do the actions by Baptist Hospital have any bearing on the final decision regarding the clinic?

10. What is your final recommendation concerning the future of the walk-in clinic?

Number of visits Net revenue Salaries and wages Physician fees Malpractice insurance Travel and education General insurance Subscriptions Electricity Water Equipment rental Building lease Other operating expenses Total operating expenses Net profit (loss) Gross margin CY current year Monthly Averages CY 2013 Jan 2014 Feb 2014 2013 Jan/Feb 2014 Total 14,522 1,365 1,335 210 1.350 1,230 $548,747 $55,028 $54,748 $45.729 $54.888 $47,037 $154,250 $13,540 $13,544 $12,854 $13,542 $12,952 192,000 18,000 18,000 16,000 8,000 16,286 31,440 3,215 3,215 2,620 3,215 2,705 5,365 538 665 447 602 469 8,112 843 843 676 700 89 16 14 11,820 124 1,029 985 1,077 998 1,260 135 142 05 139 110 1,260 105 105 105 105 105 155,745 12,500 12,500 12,979 12,500 12,910 103,779 8,152 7,923 8,648 8,038 8,561 $665,220 $58,152 $57,966 $55,435 $58,059 $55,810 $116,473 3,124 3,218 9,706 (s 3,173 8,773 -21,29% 5.7% 5.9% 21,2% -5.8% 18.7%